Cyprus’ Economic Growth to Remain Strong Despite Lingering Challenges

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Cyprus is expected to sustain strong GDP growth in the coming years, supported by improvements in employment rates, according to a recent report by the Canadian rating agency Morningstar DBRS. The agency emphasized that these trends are likely to enhance the country’s fiscal outlook.

Structural Vulnerabilities and Challenges
Despite positive developments, the report highlights challenges that continue to weigh on the Cypriot economy. As a small, service-oriented economy, Cyprus remains susceptible to external shocks. High levels of non-performing loans (NPLs) persist, even with significant reductions in recent years, and labor productivity continues to lag behind European benchmarks.

Progress in Addressing Non-Performing Loans
The Central Bank of Cyprus data shows notable progress in reducing NPLs. The NPL ratio at approved credit institutions dropped to 6.8% as of August 2024, a significant improvement from 43.7% at the end of 2017. This decline represents a reduction of €18.9 billion in absolute terms.

However, resolving the remaining NPLs will require sustained effort. By mid-2024, credit acquisition companies held approximately €21 billion in exposures, 94% of which were classified as non-performing.

Role of KEDIPES and Real Estate Trends
The public asset management company KEDIPES has faced delays in implementing its business plan, attributed to foreclosure suspensions, the COVID-19 pandemic, and geopolitical tensions. Consequently, its operational timeline has been extended until 2030.

Housing prices in Cyprus have continued to climb, with an annual increase of 8.0% recorded in the second quarter of 2024. Apartments saw a notable rise of 12.0%, while house prices increased by 6.2%. The majority of the underlying real estate collateral in Cypriot transactions pertains to residential properties, with Nicosia and Limassol identified as the most stable markets.

Positive Outlook Amid Challenges
While challenges such as external vulnerabilities and low productivity remain, Morningstar DBRS maintains a positive outlook for Cyprus, citing ongoing economic growth and declining NPL ratios as key factors.

Source: Stockwatch Cyprus

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